CEO Succession: Lessons Learned From Global CHROs
Guide originally published on Gartner.com. The archived document can be accessed here with a Gartner account.
This guide provides recommendations from world-class CHROs on how they can best support the CEO succession planning process, from aligning on successor criteria to selecting the successor candidate and managing the outgoing CEO.
Overview
Key Findings
CEO succession is a process rather than a single event. The CHRO, CEO and board should actively think through CEO succession throughout the year, not simply when a CEO departure occurs.
The role of the CHRO is to remain impartial, regardless of their opinion on who the next CEO should be. CHROs are expected to represent the facts and call out biases and inaccuracies.
Organizations tend to use the characteristics of the outgoing CEO as a guide when selecting a new CEO, which can limit organizational readiness to support future business strategy.
One of the most underestimated roles of the CHRO in the CEO succession process is managing the outgoing CEO.
Recommendations
To ensure a seamless and successful CEO succession, CHROs should:
Establish CEO succession as a continuous process, not a single event, by working with the CEO and the board to create a CEO succession plan while the current CEO is still in the role. Aligning with the board on the role they will play in the planning process will maximize the CHRO’s effectiveness.
Create a future-focused succession plan by interviewing key board members on the skills, experiences and capabilities a CEO will need in three to five years, rather than using the characteristics of the outgoing CEO as a guide.
Position themselves as an “honesty broker” during the CEO interview and selection process — someone willing to call out biases and help the board and selection committee review all CEO successor candidates fairly.
Manage any potential impact from a disaffected outgoing CEO by clearly delineating the CEO’s role in that process, managing the CEO’s emotions and mindset, and partnering with the CEO to discuss next steps in their career.
Introduction
CEO succession is arguably the most important responsibility of the chief human resources officer (CHRO). However, only about a third (34%) of respondents to the 2021 Gartner Board of Directors Talent Survey report that their organizations have a written CEO succession plan. In addition, only 27% report being very or extremely confident in their organizational readiness to implement the current succession plan.1 As a result, there is a clear opportunity for CHROs to positively impact the CEO succession planning process.
This guide highlights common roadblocks and successes a CHRO can anticipate when preparing for and undergoing CEO succession. These recommendations were created based on interviews with members of Gartner’s CHRO Global Leadership Board (CHRO Board). While each succession story had different circumstances and outcomes, their common threads and recommendations are captured here.
Analysis
Establishing the Planning Process
Organizations are better prepared to handle a CEO departure if they have a formalized succession plan in place. CHROs should work with their boards to create a CEO succession plan when the current CEO is still in the role. To help you do this, consider the following areas.
Timing
Organizations deprioritize succession planning due to time and capacity constraints. As a result, stakeholders often do not develop a comprehensive succession plan and focus instead on building a plan to fill an immediate gap when a CEO decides to step down. As CHRO, your job is to help the board and current CEO understand that CEO succession is a process rather than a single event. The CHRO, CEO and board should be actively thinking through CEO succession throughout the year, not simply when a CEO succession occurs.
Stakeholder Engagement
In order to establish the CEO succession planning process, you should build trust with all key players involved in the process. Many times, this includes (but is not limited to) the CEO, the board (in particular, the compensation or nomination committee and the lead director/chairman), and external partners such as outside search partners and consultants. To build trust:
With the CEO, set expectations at the beginning of their tenure that succession will be discussed throughout the year so the CEO doesn’t feel personally attacked or anxious.
With the board, characterize and communicate succession planning goals not only as HR-oriented activities but also as exercises integral to achieving corporate priorities. Emphasize that it is your role as CHRO to create the process, timeline and guardrails, but ultimately the process will be owned by the board (or the supervisory board/lead director in the case of many European or two-tiered boards).
Confidence
When asked, in hindsight, if they would have done anything differently during their first CEO succession, several CHRO Board members said they would have gone into the process with a stronger point of view. While you need to remain impartial during the CEO succession process, as CHRO your opinion matters; you are uniquely positioned to understand the current state and needs of the organization and its people.
Aligning With the Board on Your Role
Tenure, culture, experiences and views on HR impact board members’ perspective on the role of the CHRO in the CEO succession process. Gartner data indicates board members perceive HR leaders to be more effective when they partner with the board to develop a succession plan rather than merely inform the planning process.1 It is the CHRO’s role to ensure both they and the board align on the role they will play in the CEO succession process.
Legal Considerations
It’s important to consider the legal implications involved in the CEO succession planning process — even during informal discussions. For example, if a CEO mentions they are thinking about retiring in a few years, that change will likely need to remain hypothetical, unless you want that information to be considered a material fact that must be communicated to investors. If there is an external counsel at board meetings, they should be regularly consulted on what is prudent to say about the CEO succession process and how to document the minutes.
Guiding Principles
Work with your CEO and board to ensure ongoing alignment on the CEO succession process. Consider creating a formal document to support this process in order to maintain alignment over time (see Figure 1).
Figure 1: YellowAce’s CEO Succession Guiding Principles Document
Creating a Future-Focused Succession Plan
Aligning on CEO Successor Criteria
It is possible your organization’s board members have different perspectives on the critical skills and experiences an incoming CEO should possess. To help key stakeholders align on CEO successor criteria, consider the following areas.
Your Role
While you might have a good idea of the skills and experiences the incoming CEO should have, you must still understand that others in the organization may also possess unique experiences that provide critical insight.
Number of Criteria
There is no specific number of experiences or skills that should be on the CEO successor profile. Some CHROs believe the profile should include three to five inputs, while others do not set limits.
Those who prefer more requirements argue the CEO role is one of the most complex and important roles in the organization, and therefore many prerequisites are needed. Having more requirements also allows the board to select what requirements they want to prioritize. Those who prefer fewer requirements, on the other hand, note that this approach provides clear guardrails for the board when selecting a successor, although they admit it might not encompass all that is needed in the CEO role.
Regardless of the number of criteria used, heads of HR should help their boards prioritize experiences and skills to ensure the process is efficient and effective.
Future-Focused Criteria
Organizations tend to use the characteristics of the outgoing CEO as a guide when selecting a new CEO. This approach, however, is limited to current organizational needs and does not account for the necessary skills to handle rapidly evolving business priorities. Instead, you should work backward from where your company will be in three to five years and create multiple scenario plans. To do this, interview key board members on their views of the profile. This should help you understand what skills, experiences and capabilities a future CEO should possess.
Use the following interview guide to identify the critical skills and competencies.
Executive Interview Guide to Identify CEO Skills and Competencies
Use this questionnaire to help you plan conversations with key stakeholders to understand the company’s future needs. Based on your company’s circumstances and the circumstances surrounding transition planning, you may need to adapt these to suit your needs.
Stakeholders to interview include:
The CEO
The chairman of the board
Board members
Business and functional leaders
Provide these stakeholders with a list of company-specific skills and competencies, and document their responses to each question:
How will the organization’s strategy change over the next three to five years?
What are the most important skills you would look for in a CEO of this company?
What are the most important qualities and experiences you would look for in a CEO in this company?
How would you expect a new CEO to support business goals?
What specific CEO competencies would help you better achieve your organization-related business goals?
What competencies do you value most in our current CEO?
Why are those competencies valuable to you and your business goals?
How do you see the CEO role changing in the next three to five years, and what impact might this have on the current CEO profile?
Once you have your stakeholders’ answers, input your organization’s goals for the next three to five years into your CEO successor criteria template (see Table 1). Next, fill in each of the columns based on executive interviews and your overall take-aways.
Table 1: CEO Successor Criteria Template (Illustrative)
Identifying CEO Successor Candidates
While it is critical to focus on the skill sets and experiences needed for an incoming CEO, it is just as vital to identify a list of successor candidates. This is not only for emergency CEO succession planning but also for development purposes. To help you identify CEO successor candidates, consider the following areas.
Your Role
The role of the CHRO is to remain impartial, regardless of whether you have an opinion on who the next CEO should be. It is not your role to campaign for one candidate over another, but rather to represent the facts and call out biases and inaccuracies where you see them.
Internal and External Search
HR leaders often focus on individuals backed by the current CEO or board. This often means HR leaders select from a limited, potentially biased pool of candidates and fail to account for other talent — whether internal or external —whose leadership profiles and abilities fit the CEO role. Even if you’re confident the board will select an internal successor, it is worthwhile examining the external marketplace to align on qualifications and experiences. Make sure the internal and external search processes are aligned.
Broadening the Search
You might want to consider identifying successors who are not direct reports to the CEO, but rather skip-level reports. CHRO Board members have differing opinions as to the feasibility of identifying a skip-level successor. See Table 2 for the benefits and drawbacks.
Table 2: Benefits and Drawbacks of a Skip-Level CEO Successor
Confidentiality
Most CHRO Board members agree there is more risk than reward in telling leaders they are on the CEO successor list. This is because CEO capabilities can change and full successor list transparency may create hostility, jealousy or embarrassment for those who are not selected. If you choose to be transparent about the process, be sure to consider potential unintended consequences.
Monitoring Succession Plan Effectiveness
When CEO succession is a process rather than an event, that process should be constantly monitored throughout the year to ensure it remains relevant and effective. To help you monitor succession plan effectiveness, consider the following areas.
Timing
Ensure your board formally reviews the CEO succession plan at least once a year.
Success Metrics
While CEO performance is an important measure of succession plan effectiveness, it is a lagging indicator. You should also track metrics such as:
Thoroughness of succession plan inputs
Quality of succession conversations
Number of perspectives in your succession plan
Specificity of CEO job requirements and how thoroughly succession candidates are matched against them
Turnover of the central team
Ramp time
Stock market indexes
Activist Investors
When monitoring succession plan effectiveness, it’s important to keep an eye out for activist investors, as their agendas might differ from those of other stakeholders involved in the succession process. It is your role as CHRO to advocate for both the board and the management team in this situation.
Interviewing and Selecting the CEO Successor
Much of the early work completed in the succession management process leads up to this moment: interviewing and selecting the next CEO. It is critical that organizations create effective and impactful interview processes for CEO candidates and mitigate potential selection biases. To help you interview candidates and select the CEO successor, consider the following areas.
Your Role
The CHRO must be viewed and act as an “honesty broker” — someone willing to call out biases and help the board and selection committee review all CEO successor candidates fairly.
Reassurance of neutrality — Be aware of your proximity to the CEO role and how that affects board relationships and their view of your role as an honesty broker in the selection process. For example, if you are close with the current CEO, board members might be nervous that you are relying too much on the CEO’s perspective. Therefore, reassure board members you will act independently and stick to the process in place.
Mitigating bias — In order to become an honesty broker, you must push back on all board members who may be biased or one-sided in drawing CEO selection conclusions. It’s important you diagnose the reasons for potential biases prior to the selection discussion so you are prepared with a response.
The Interview Process
It is critical to implement and adhere to a rigorous and regimented interview process. The differentiators of a successful interview process are:
Board participation — Board participation in the interview process can vary; some organizations have the full board interview successors, while others only include the nominating and selection committee. Regardless, ensure all board members interact with each candidate (e.g., candidates present to the full board or join a post-board-meeting dinner). While interview debriefs are usually facilitated by a selection committee member or outside facilitator, the CHRO should be involved by upholding neutrality in the interview debrief process.
An outside facilitator (if resourcing allows) — If you have the resources, consider hiring an outside facilitator for the selection process, as they bring objectivity, accountability and years of experience to the process.
Traditional and vision assessments — While formal assessments (e.g., 360-degree reviews and learning agility assessments) are important inputs to the selection decision, consider using a “vision paper” to gain an understanding of candidates’ views on the future of the organization. For example, Cisco has CEO successor candidates complete a vision paper during the CEO selection process to offer the board a vision for how they would run the company. The board keeps the vision paper guidelines vague and short so they can also understand how candidates interpret the task (see Figure 2).
Figure 2: Cisco’s CEO Vision Paper Guidelines
The Selection Process
While selection of the next CEO is frequently decided by the board alone, there are still critical components that the CHRO can influence and impact, including:
Board realignment to the job profile — If the board directors cannot decide between successors, you should help them realign with the job profile in order to facilitate a discussion on who is the best fit.
Data to inform decision making — When deciding between CEO successors, there’s an opportunity for the CHRO to use data creatively to inform and support the decision. For example, workforce culture and change readiness data can indicate whether an internal or an external candidate is better suited for the position. Additionally, CEO candidates’ internal and external networks can be useful indicators.
Successor alignment with culture — Although your CEO successor does not need to have the same personality style as your outgoing CEO, it is critical that the incoming CEO is still aligned with your organization’s culture. It is your job as CHRO to help the board realize this distinct difference. To do this, start with the business landscape and your organizational context. Next, determine key cultural characteristics of your organization and understand what types of CEO characteristics you should be looking for to fit those.
Acting as Trusted and Advisor and Coach to the CEO
Managing the Outgoing CEO
CHRO Board members agree one of the most challenging, and yet unacknowledged, components of CEO succession is managing the outgoing CEO. The challenge lies less in managing the process and more in managing the emotions and attitudes of the outgoing CEO. To help you manage the outgoing CEO, consider the following.
Outgoing CEO Preparation
You should start to prepare your outgoing CEO for their transition the moment they are in the CEO role. Examples of how to do this include:
Once in seat, asking your CEO to let you know if they plan to retire at least two years in advance
Setting “term limits” for your CEO as soon as they are in seat to formalize when it’s time to discuss whether the position is still a good fit
Starting conversations on CEO succession planning with your current CEO in the latter part of their first year to get them accustomed to the idea of a future transition
Managing Outgoing CEO Emotions
As CHRO, you need to fully understand, empathize with and manage the emotions and mindset of an outgoing CEO. An outgoing CEO often feels they are losing a part of their identity.
Table 3: CEO Behavior Red Flags and How CHROs Should Respond
Outgoing CEO Involvement With Transition Planning
CHROs should implement guardrails on which CEO succession activities the outgoing CEO will be involved in, and which they will not. If the CEO wants to be more involved than the board would like, refer to the process and delineation of responsibilities. Alternatively, with the board’s approval, you can provide the CEO with informal updates to make them feel included in the process.
Outgoing CEO Professional Support
To support the outgoing CEO as a trusted advisor and coach, partner with them on the next step in their career and life — whether this is traveling, joining a nonprofit board or taking a CEO role at another organization.
Onboarding the New CEO
Most companies do not plan beyond the CEO transition itself. To help you create and execute the CEO onboarding process, consider the following areas.
Your Role
At many organizations, it is the CHRO’s responsibility to create the CEO onboarding plan. That said, you should partner with other critical stakeholders and executive team members when applicable. It’s important to remember that while your job is to help the CEO with their onboarding, it is ultimately their responsibility to execute and follow up on the plan.
The Onboarding Plan
While an onboarding plan has various components, areas to consider when creating it include:
The first-six-months plan — Given the criticality of the CEO’s first six months in the role, create a six-month onboarding plan, propose it to the new CEO and work with them to solidify it. Bring in other leaders as necessary to create the plan (e.g., the head of strategy and the head of external affairs). This plan should be a live document that is updated as strategies and perspectives change. See Table 4 for sample components of a plan and for questions the CHRO can ask the CEO to gauge their perspective.
Table 4: CEO Six-Month Onboarding Plan Components
Building the CEO network — Support the incoming CEO in building their CEO network via new CEO programs or personal connections.
Executive coaching — Consider hiring an executive coach (especially for a first-time CEO) to help the CEO get up to speed as quickly as possible.
CEO mindset shift — Eighty percent of all 2021 S&P 500 CEO transitions were internal promotions.2 With this trend toward internal successors, most new CEOs do not have prior CEO experience. As CHRO, you should help the CEO understand that their new role is completely different from previous roles, and what made them successful in the past might not work today.
Listening tour — Have the CEO complete an organizational listening tour and meet with different levels of employees throughout the organization. During these conversations, the CEO should ask what needs to stay the same, what needs to change and what two to three recommendations they have to improve the organization.
Meetings with the executive team — Ensure the CEO meets with the executive team, both individually and as a group, to state what they consider to be acceptable and unacceptable leadership and behaviors.
Possible executive team restructuring — During the onboarding process, the CEO should evaluate all executive team members to gauge whether they are a good fit with the CEO’s vision and agenda. The CEO and CHRO should consider the expertise, background and personality of each member of the executive leadership team. It is your role as CHRO to provide your unbiased perspectives on the topic, even if your role is also under review.
Strategic alignment — It is critical that onboarding program priorities are aligned with the strategic priorities chosen by the CEO to ensure the new CEO is not inundated with onboarding activities they don’t want to spend time on.
The CEO’s calendar — Managing the CEO’s calendar is critical; therefore, it’s important to build a relationship with the CEO’s executive assistant. If possible, make the CEO’s executive assistant role rotational (e.g., 18 to 24 months) so it doesn’t become a “power trip” position.
The CEO’s emotional health and well-being — Many aspects of the CEO role can be completely new, time-consuming and mentally exhausting. As CHRO, you should provide guidance to the CEO on how they can manage their personal wellness in their new role. Think of small activities that can help the CEO maintain and improve their health and wellness.
Conclusion
CEO succession is a critical component of business continuity and success. Well-designed succession plans can improve the attitudes of investors, customers, business partners and employees. CHROs must understand the crucial role they play in all aspects of the CEO succession process — from identifying successor criteria to managing the outgoing CEO.
In order to work smarter rather than harder, heads of HR should understand and implement lessons learned from other CHROs who have been through the CEO succession process.
Evidence
This research was created based on interviews with members of Gartner’s CHRO Global Leadership Board. This board is composed of CHROs from the world’s top companies with expertise in HR, people management and executive leadership and aims to play a major role in influencing and advancing the HR community. Learn more about the CHRO Global Leadership Board.
1 2021 Gartner Board of Directors Talent Survey: This survey was conducted to understand the relationship between boards of directors and the CHRO and to benchmark boards’ experience and effectiveness in managing CEO transitions. The research was conducted online in November 2021 among 200 respondents from the U.S., Europe and Asia/Pacific. Companies were screened to be small, midsize, large or global enterprises. Respondents were required to be a board director or a member of a corporate board of directors. If respondents served on multiple boards, they answered for the largest company (defined by its annual revenue) for which they were a board member. Disclaimer: Results of this study do not represent global findings or the market as a whole but reflect the sentiment of the respondents and companies surveyed.
2 2021 CEO Transitions, Spencer Stuart.
